Kingdom of Cambodia
Nation Religion King
Opening Address
by
Senior Minister KEAT CHHON,
Minister of Economy and Finance
At the
Launching of Cambodia Economic Forum
Palais du Gouvernement, Phnom Penh, 17 January 2006
1. Today, the Palais du Gouvernement is most honoured to welcome Samdech
Prime Minister Hun Sen to this Launching of First Cambodia Economic Forum.
Indeed, this is a government-led forum. We all can exchange our views and
experiences on how to lead Cambodia into development.
2. May I congratulate and highly appreciate the Supreme National Economic
Council for organizing such an important forum. Taking this great
opportunity, I would like to extend my warmest congratulation and profound
satisfaction to Dr. Aun Porn Moniroth, Chairman of the Supreme National
Economic Council. On 9 January 2006, he was elected and announced by the
World Economic Forum (WEF) in Davos as a Global Young Leader among 175
Global Young Leaders elected from a pool of 3,500 nominees from all over the
world. From those elected, there are only 40 from Asia. This nomination
presents not only the recognition of Dr. Aun Porn Moniroth’s intelligence,
performance and achievements, but also the reflection of emerging young
capable generation for future Cambodia and success of Prime Minister Hun
Sen’s human resource development policy. Thus, it is not a surprise that Dr.
Aun Porn Moniroth must play a core role in this forum. This is the first
forum ever organized in Cambodia, where knowledge, research findings and
ideas will be widely discussed to provide inputs for preparing future
development policy of Cambodia. I would like to take this opportunity to
thank UNDP for providing support to the CEF. I would like also to offer my
high appreciation to the Asian Development Bank (ADB) for their strong
support to Supreme National Economic Council since the beginning.
3. My remarks today will focus on the theme “Building on Cambodia’s
Achievements”. Looking back to 26 years ago, after the liberation day of 7
January 1979, our people had nothing, no food and no cloths, and we were
very poor. Then, 100 percent of the people were in absolute poverty. Twenty
six years later, we have achieved tremendously in term of physical
infrastructure and superstructure which are fundamental for economic
development, poverty reduction, institution building and strengthening of
freedom and democracy. This 2006 is the eighth year which Cambodia has been
in full peace, while the territories are physically and institutionally
unified. In my speech today, I would like to highlight the achievements in
four different key areas, namely, macroeconomic development, monetary policy
and performance, evaluation and acceptance by the International Financial
Institutions (IFIs) and poverty reduction and social development. All these
achievements are the results of strict implementation of the Royal
Government’s political platform and the Triangle and Rectangular Strategy of
Prime Minister Hun Sen. Before turning to my theme, I wish to emphasize the
role of political stability and maintenance of social orders and peace,
which are the environment for development. The Royal Government, under Prime
Minister Hun Sen’s leadership, has learned a lot from Cambodia’s recent
history during the 1960s and 1970s as well as the early 2000s to definitely
prevent “a small fire from burning an entire grass field”. Thus, for border
and racial issues, the Royal Government doesn’t and will not tolerate or
allow any incitement that leads to chaos and riots leading to the assault on
foreign embassies, such as what happened during 1965 and 1970, the killing
of Vietnamese people and Coup d’ Etat in 1970 and the recent event of 29
January 2003 (burning of Thai embassy and companies). For the latest painful
events, the Minister of Economy and Finance has not yet paid off all the
compensation for the damages.
Macroeconomic Development
4. From 1999 to 2005, overall growth averaged 7 percent annually, and the
per capita income growth was 4½ percent per annum in real term.
5. The progress has been made on all fronts, and positive and progressive
changes are clearly manifested over the past decade, such as (i) spectacular
and sustained economic growth; (ii) better and steadily improving fiscal
discipline and management; (iii) sharp and noteworthy reduction in poverty
levels at one percent a year; (iv) measurable improvements in various social
indicators such as: expansion of primary education; reduction in mortality
rates for both infants and children under-five years old; significant
reduction in communicable diseases, especially HIV/AIDS; improved urban
access to safe water, and rural access to sanitation; and reduction in
gender disparity and so on and so forth.
6. The past good performance is made possible by political stability, peace
and security and sound macroeconomic policy framework which are the required
environment for economic growth. The economic performance in 2005 is
estimated to be 7 percent in growth rate against 2.5 percent projected early
this year, reflecting stronger agricultural growth (benefiting from
irrigation systems and the policy of economic diversification based on
agricultural and agro-business development), and continued expansion of
exports, tourism and construction activities. Particularly for garment
exports, the Royal Government has made significant financial sacrifices to
support this sub-sector after the end of Multi-Fibre Agreement in early
2005. The RGC exempted payment of profit tax for 2 more years, resulting in
loss to budget revenue of approximately CR71.5 Billion in 2006 and CR106.2
Billion in 2007. This does not include custom related duties exemption of
over CR1,200 Billion a year. The Royal Government believes that all the
stakeholders of these sectors will have enough time to improve
competitiveness, while it takes trade facilitation measure to reduce the
costs of doing business.
7. Moreover, the fiscal performance in 2005 has been good, with improved
revenue mobilization and expenditure rationalization. Domestic revenue in
2005 reached 11.7 percent of GDP, compared to 7.6 percent of GDP in 1995.
The tax revenue increased from 5.3 percent of GDP in 1995 to 8.7 percent of
GDP in 2005.
8. On the expenditure side, tightened disciplines and expenditure
rationalization have been exercised systematically. The 2005 Budget has been
implemented with extreme prudence and caution to make room for priority
spending: education, health, civil service reform and the overhaul of
physical infrastructure including the irrigations.
9. In the near future, the prospect of the economic growth in Cambodia will
remain bright as Cambodia’s off-shore oil and gas exploration provides
strong impetus to economic development of Cambodia. Moreover, another sector
to lead the growth is tourism sector. The number of tourists visiting
Cambodia significantly increased during last five years and in 2005
increased by 35 percent to 1.4 million people, compared to 2004. Talking
about future oil resource, we must definitely draw the experiences of
Nigeria or Bolivia, who are still very poor, or the experience of the
Netherlands, a rich country who wasted and misused the resource, and
suffered high inflation and lost competition.
10. Other than the natural endowments, the growth will also benefit from the
various reforms being decisively implemented by the Royal Government. Those
include especially Public Financial Management Reform, Financial Sector
Development and Private Sector Development particularly through improved
business and investment environment, trade facilitation programme and SME
development, Land Management Reform, Administrative Reform, Legal and
Judicial Reform and others.
Monetary Policy and Performance
11. The Royal Government understands that the stability, prudent management
and confidence building on the monetary sector will contribute tremendously
to the growth and development of the economy. The reforms done by the Royal
Government in this sector yielded positive results in term of greater
confidence and stronger financial sector.
12. The greater confidence in the banking system leads to broad money
recorded a robust growth of 20 percent in 2005, due to the increase in
foreign currency deposits and credit to the private sector. Credit to
private sector rose by 40%, driven by the construction of hotels and houses.
Gross official reserves rose by 12 percent reflecting continued strong
export performance, sustained tourist arrivals, and other forms of capital
flows, including FDI. However, it should be seen that the Royal Government
is now implementing de-dollarization. The pace should be consistent with and
follows market principles and nature. Our economy must be based on national
currency, which should be based on a basket of foreign currencies and
consistent with the integration of our economy into regional and world
economy. The most concern now is current account deficit of the United
States, which increased from USD400 Billion in 2001 to USD700 Billion in
2004. Now, the emerging economies like China are financing the US in
different forms to keep its purchasing power and able to continue to import.
However, the question is how long such the financing can sustain the world
economy? I think, one day, such arrangement will collapse and the world
economy will slow down. Thus, our external trade should concretise its quest
of new markets quickly, even though we are now relying on the US for about
80 percent of our export market. Thus we should have long-term perspectives
and more specific measures for:
- De-dollarization of our economy
- Basket of currencies
- Export markets
13. Despite high oil prices, the Royal Government has been successful in
maintaining inflation under check and ensuring stable exchange rate in
general. Inflation reached 5.8 percent at the end of 2005. This is in the
range that can be managed.
Evaluation & Acceptance by IFIs
14. Under the Multilateral Debt Relief Initiative, the IMF Executive Board
approved in December 2005 debt relief for Cambodia. As part of the
Initiative, the IMF will provide 100 percent of debt relief on all debt
incurred by Cambodia to the IMF before January, 2005 to the amount of US$82
million. The saving will be transferred for financing public investment
projects aimed at poverty reduction in Cambodia.
15. Indeed, the international community has made these additional resources
available to help Cambodia make progress toward the Millennium Development
Goals (MDGs). Cambodia was qualified for IMF debt relief because of its
overall satisfactory recent macroeconomic performance, progress in poverty
reduction, and improvements in public expenditure management.
Poverty Reduction and Social Development
16. With continued economic growth, the poverty in Cambodia has fallen
between 1994-2004. Based on the recent Cambodia Socio-Economic Survey (CSES)
on the same geographic samples of previous surveys (56% of total
territories), the poverty headcount reduced from around 39 percent in 1994
to 29 percent in 2004. Per capita household consumption has risen 32 percent
in real terms. Having seen this result, the Royal Government is determined
to make further efforts, as the country-wide poverty rate is still high, 35
percent.
17. In terms of human development, education sector is a success story. A
focus on primary education, backed with rising public spending, has resulted
in more schools and trained teachers, lower direct costs to households; and
increasing primary enrolment rates (particularly for girls and poor
children). The percentage of children needing to repeat grades has fallen
considerably from 26 percent in 1997 to 10 percent in 2003. Concerns for
improving quality at all levels remains, however, the Royal Government are
continuing to address it.
18. Significant progress has been achieved in the health sector as well. All
health indices have shown considerable improvement but they are still high
in many cases and exceed those in nearby countries. Child nutrition remains
serious and incidences of preventive diseases are very high, but there are
clear gains in both preventive care (e.g. vaccination coverage and antenatal
contacts) and curative care. High rates of maternal mortality are of
particular concern. An impressive success story is the rapid decline in
prevalence of HIV/AIDS (down to 1.9 percent among adults aged 15-49 in 2003,
from 3 percent in 1997), brought about the RGC's highly focused commitment
and excellent collaboration with and among external development partners.
19. In expressing our high hope on the recent positive developments, I would
like to reiterate that our achievements were possible thank to our strong
belief in and commitment to a productive quadrant partnership: Government,
Private Sector and Bi-multilateral and international cooperation community,
and NGOs. The participatory approach that the Royal Government has adopted
has proved to be a winning approach.
Conclusion
20. The achievements that Cambodia has made in economic and social sectors
are due to the country’s peace, territorial unity and political stability,
and social orders. In the future, we will spare no efforts to do our best in
all reforms and development fronts, and will not let the “oil resource
curse” or negative impacts to happen as experienced by some developed and
developing countries. The combination of economic and political instability,
which is disturbing the world now, requires Cambodia to be more proactive in
enforcing de-dollarization policy and exploring new markets in other
countries along with the development of agriculture and agro-business in
framework of the diversification of our economy. As always, the Royal
Government led by Samdech Prime Minister Hun Sen adopts a proactive approach
in governing the country.
Thank you for your attention!